Margin question

N

nwoptions

Hi guys, I've got a question about trading on margin with stocks.

Let's say I want to trade the stock ALLY. it's current stock price is $53.41. With an 8% stop loss, and if I risk 1% of my account (in this example I have $10,000 in total assets), I can trade 23 shares.

How does margin enter the equation? If I use an online stock position calculator (I use Investment U's) and enter 1% as the amount I'm willing to risk, does margin double this amount?

So 1% becomes 2%?

If I want to use margin do I enter 2% in the calculator instead of 1%?

Thanks
 
Margin with stocks has nothing to do with your stop loss or the % of your account you are risking.
If your account total is $10,000 and you invest $1,228 (23 x $53.41), there won't be any margin required.
If your margin is 50% and you have $10,000 in your account, it means that you'll be able to invest for $20,000 (50% cash, 50% on margin).
Unless I misunderstood your question.
 
rb7 said:
Margin with stocks has nothing to do with your stop loss or the % of your account you are risking.
If your account total is $10,000 and you invest $1,228 (23 x $53.41), there won't be any margin required.
If your margin is 50% and you have $10,000 in your account, it means that you'll be able to invest for $20,000 (50% cash, 50% on margin).
Unless I misunderstood your question.
More...

Thank you for the reply rb7.

Sorry if this sounds like a dumb question, but what's the point of using leverage? I know it can increase your return but it also increases your risk too. Why not just trade with cash only?

Thanks
 
nwoptions said:
Thank you for the reply rb7.

Sorry if this sounds like a dumb question, but what's the point of using leverage? I know it can increase your return but it also increases your risk too. Why not just trade with cash only?

Thanks
More...
Yep, there ain't such thing as a free lunch!

Leverage is the key.
If you win, you win more.
If you lose, you lose more.

But what's the point of trading if you lose???
 
Maybe margin trading in stocks is different with forex, I am not yet trying trading stocks but still in forex, and margin in forex is the number of funds held by broker as collateral to open new order, the calculation margin trading requirement also depending on leverage, size position, and current price.
 
You must log in or register to reply here.
Back
Top